Twersky Law Group, a highly regarded and reputable law firm based in New York, wishes to inform investors about a significant development in the form of a class action lawsuit against Applied Digital Corporation (“Applied Digital” or “the Company”) (NASDAQ: APLD) and certain officers of the company. This lawsuit has been filed on behalf of all individuals and entities that purchased or otherwise acquired Applied Digital securities from April 10, 2022 through July 26, 2023 (the “Class Period”). Investors who acquired Applied Digital securities during this defined timeframe are strongly encouraged to participate in this case by contacting atara@twerskylawgroup.com. The deadline to file a motion for appointment of lead plaintiff is October 11, 2023.
The fundamental objective of this class action lawsuit is to recover for the benefit of investors who purchased Applied Digital securities during the Class Period, the losses they sustained as a consequence of the misleading statements made by Defendants in violation of the federal securities laws.
ALLEGATIONS AGAINST APPLIED DIGITAL CORPORATION
In April 2022, Applied Digital conducted its initial public offering (“IPO”), issuing 8 million shares of common stock priced at $5.00 per share for a total of approximately $40 million in proceeds. The primary underwriter of the IPO was B. Riley Securities, Inc. (“B. Riley Securities”), an investment bank and subsidiary of the diversified financial services platform B. Riley Financial, Inc. (“B. Riley Financial”). On April 13, 2022, pursuant to the offering documents issued in connection with the IPO (the “Offering Documents”), Applied Digital’s securities began trading on the Nasdaq Global Select Market (“NASDAQ”). The Offering Documents described several close connections between Applied Digital and B. Riley. For example, in the “conflicts of interest” section of the IPO Prospectus, Applied Digital stated that, in August 2021, the Company’s Chief Executive Officer (“CEO”), Defendant Wesley Cummins (“Cummins”), sold a majority interest in a registered investment adviser controlled by Cummins to B. Riley Financial, and thereafter became President of B. Riley Asset Management. At the time of the IPO, Cummins also served as the CEO and President of B. Riley Capital Management, LLC. Further, the IPO Prospectus stated that two members of the Board, Chuck Hastings (“Hastings”) and Virginia Moore (“Moore”), maintained similarly close connections to B. Riley. Specifically, at the time of the IPO, Hastings served as the CEO of B. Riley Wealth Management, Inc. and Moore was married to the CEO of B. Riley Securities. As a company publicly traded on the NASDAQ, Applied Digital is required to comply with Listing Rule 5605(b)(2), which states that a majority of the Company’s board of directors (the “Board”) must be comprised of independent directors. Nasdaq Listing Rule 5606(a)(2) defines an independent director as “a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.” Notwithstanding the close ties between Applied Digital and B. Riley, the prospectus issued in connection with the IPO (the “IPO Prospectus”) nonetheless assured investors that Applied Digital had “structured [its] Board composition and corporate governance in order to meet the requirements of the [NASDAQ]”. On May 15, 2023,
Applied Digital announced that it was launching cloud service to “[e]mpower [a]rtificial [i]ntelligence [a]pplications”. Eight days later, on May 23, 2023, Applied Digital entered into a loan and security agreement with B. Riley Commercial Capital, LLC and B. Riley Securities. The agreement, the purpose of which Applied Digital claimed was to supply “additional liquidity to fund the buildout of the Company’s recently announced AI cloud platform and data centers by the Company,” provided for a term loan in the principal amount of up to $50 million, with an interest rate of 9.00% per annum, and a maturity date of May 23, 2025. However, Applied Digital repaid the total balance of the loan nearly two years ahead of its contractual maturity, a timeframe that corresponded with B. Riley’s own efforts to finance its recent acquisition of the holding company Franchise Group, Inc. The complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) Applied Digital had overstated the profitability of its datacenter hosting business and its ability to successfully transition into a low-cost AI Cloud services provider; (ii) Applied Digital’s Board of Directors was not independent within the meaning of NASDAQ listing rules; (iii) accordingly, Applied Digital had overstated the efficacy of its business model and failed to maintain proper corporate governance standards; (iv) the foregoing, once revealed, was likely to subject the Company to significant financial and/or reputational harm; and (v) as a result, the Company’s public statements were materially false and misleading at all relevant times. In July 2023, market analysts began scrutinizing Applied Digital’s business model as well as assembling the various connections between Applied Digital and B. Riley into a cogent picture. First, on July 6, 2023, market analysts Wolfpack Research (“Wolfpack”) and The Bear Cave (“Bear Cave”) published short reports on Applied Digital. The Wolfpack report raised questions about the viability of the Company’s business model, stating, for example, that the Company “pumped up its stock in May by claiming to pivot from a floundering business hosting bitcoin miners, to becoming a low-cost AI Cloud service provider,” and “[t]he explosion of interest in AI after the emergence of Chat GPT has predictably attracted the worst promoters []to peddle fake AI wares to credulous investors, and our analysis indicates that APLD is one of these grifters because it is not an AI company[.]” The Bear Cave report, for its part, detailed Applied Digital’s problematic corporate history, alleging that “Applied Digital relies on puffery over substance and is a perfect case study on our market’s bizarre underbelly of reverse mergers, microcaps, and shell companies.” Following publication of the Wolfpack and Bear Cave short reports, Applied Digital’s stock price fell $1.27 per share, or 14.16%, to close at $7.70 per share on July 6, 2023. Finally, on July 26, 2023, The Friendly Bear published a short report on Applied Digital. The Friendly Bear report expressed the view that B. Riley “is controlling managerial decisions at Applied Digital to the detriment of Applied Digital shareholders”; that Applied Digital’s board does not “meet[] the independence requirements under Nasdaq rules and . . . is essentially controlled by B. Riley.” The Friendly Bear report also alleged that clear conflicts of interest undermined the Company’s purported investigation into sexual harassment claims made against Defendant Cummins the previous month, noting that the manner in which the claims were summarily dismissed by Applied Digital’s Audit Committee could subject Applied Digital to “significant legal blowback.” Following publication of the Friendly Bear Report, Applied Digital’s stock price fell $0.60 per share, or 6%, over the following two trading sessions, to close at $9.40 per share on July 28, 2023.
ABOUT APPLIED DIGITAL CORPORATION
What does Applied Digital do?
- Applied Digital is a North American company specializing in datacenter design, development, and operation. It offers AI cloud services, datacenter hosting, and crypto datacenter hosting. After its April 2022 IPO, which raised about $40 million with B. Riley Securities as the primary underwriter, concerns arose about its ties to B. Riley and compliance with NASDAQ rules. In May 2023, Applied Digital launched AI cloud services and entered a loan agreement with B. Riley. Subsequent market analyst reports in July 2023 criticized the company’s business model and links with B. Riley, leading to a drop in its stock price.
What was Applied Digital’s prior name?
- Applied Digital was originally known as Applied Blockchain.
JOIN THIS CASE AGAINST APPLIED DIGITAL CORPORATION
It is important to note that a class action lawsuit has already been filed in connection with these allegations. Therefore, for those individuals who suffered financial losses in their investments in Applied Digital during the Class Period, there is a limited opportunity to seek appointment as a lead plaintiff. This process entails requesting the Court to designate them as the primary representative on behalf of the entire class. The deadline for submitting such a request is October 11, 2023. It is important to emphasize that while becoming a lead plaintiff can offer certain advantages, participation in the recovery process and the potential for financial compensation does not mandate serving as a lead plaintiff.
Twersky Law Group, a distinguished legal firm renowned for its attorneys expertise in handling securities fraud class actions and shareholder derivative suits, who have a long-standing track record of successfully recovering significant sums of money for investors nationwide. With an unwavering commitment to seeking justice for their clients, the firm’s attorneys are resolute in pursuing fair compensation on behalf of those affected by alleged securities law violations. As with any legal matter, it is essential to understand that this announcement constitutes attorney advertising. Past case outcomes and results achieved do not guarantee similar outcomes in this particular case.
Investors who believe they may qualify as potential class members in the class action lawsuit against Applied Digital are strongly encouraged to reach out directly to the firm for further information and assistance. The knowledgeable legal professionals at Twersky Law Group stand ready to provide guidance and support to investors seeking to protect their rights and pursue the recovery they deserve.
ABOUT US
For more information as well as to join this case please contact Atara Twersky, Esq. at atara@twerskylawgroup.com. Atara is Principal at Twersky Law Group and of counsel at AF&T Law Firm where she is director of Investor Services. Atara focuses her practice on assisting her clients with increasing their investment portfolio recoveries and ensuring that their portfolios remain healthy and robust. For more information on shareholder recoveries, listen to Atara ’s Pension and Investments Podcast with notable guests in the pension fund Industry that discusses various matters relating to investment portfolios. For more information on Atara and her legal work pertaining to shareholder protection click here.
